FAYETTEVILLE, Ark. – If trade partners inflict a 25 percent retaliatory tariff on
U.S. soy, rice, corn, and grain sorghum, Arkansas could take a $383 million hit in
overall value-added to its economy, according to an analysis released Thursday by
economists with the University of Arkansas System Division of Agriculture.

Also Thursday, President Trump announced plans to impose import tariffs of 25 percent
on steel and 10 percent on aluminum, with exemptions for Canada and Mexico.

TARIFFS -- Estimated impacts if US is subject to retaliatory tariffs. (U of A System
Division of Agriculture)

“Agriculture in the United States is a potentially likely target for retaliation,”
said Eric Wailes, distinguished professor and L.C. Carter endowed chair of Agricultural
Economics and Agribusiness for the University of Arkansas System Division of Agriculture.
And “Arkansas is a major oilseed and grain exporter to China, Canada, and Mexico among
others.”

Wailes, along with department colleagues Alvaro Durand-Morat, assistant professor
of agricultural economist; and technical assistant Leah English, prepared an analysis
of potential impact on rice, corn, soybeans and sorghum exports should the U.S. implement
trade tariffs.

“If the value of Arkansas’ oilseed and grain sectors each fell by 14 percent,” Wailes
said. “The result would be an output loss of $243.7 million in the oilseed farming
sector and $191 million in the grain farming sector.”

The team said those losses could adversely affect Arkansas employment by around 4,438
jobs, reduce labor income by $261 million and reduce overall value-added to the state
economy by $383 million. The reduced crop production values are relative to the 2017
preliminary no-tariff estimates reported by the National Agricultural Statistics Service.

Here is the analysis by commodity:

Rice

The U.S. is fifth-largest exporter of rice in the world and exports an annual average
3.4 million metric tons, or 54 percent of production. Arkansas accounts for about
50 percent of the U.S. rice economy. Mexico, Japan and Canada are the major export
markets for U.S. rice. In their analysis, the economists assumed that only Canada,
South Korea, Mexico, Turkey, Japan, the European Union and Taiwan would retaliate.

“Both the U.S. long grain and medium grain rice markets stand to lose from the retaliatory
measures of the selected importing countries,” Durand-Morat said. “We estimate total
U.S. rice production and exports to drop 1.3 percent and 3 percent, respectively,
and domestic consumption increases marginally, as a result of the implementation of
import tariffs on U.S. rice.”

The total value of U.S. rice production would decrease by $151 million due to a combination
of lower producer prices and output. Rice producers’ welfare, measured by the producer
surplus, would decrease by $118 million. U.S. consumers would benefit from the trade
restrictions through lower prices, increasing their welfare some $66 million.

Exports to Mexico and Canada would decrease significantly, but the impact would be
much smaller in Japan because it already imposes high restrictions on rice imports.
Other customers such as Haiti and Colombia would also benefit from the decrease in
U.S. rice prices and expand their imports, which partially offsets the decrease in
trade with the countries imposing the retaliatory import tariff on U.S. rice.

Soybeans

The U.S. is a major exporter of soybeans with China being its biggest market. In 2016,
Arkansas ranked No. 11 in share of U.S. soybean sales of nearly $1,592 million, 3.8
percent of total U.S. soybean receipts. A 25 percent tariff would result in a 14 percent
loss of value and a 19 percent decline in export volume. Between 2015 and 2017, the
average volume of U.S. net soybean exports is 55.7 million metric tons or 49 percent
of domestic production.

Corn

The U.S. is also a major exporter of corn, with the largest markets being Mexico,
Japan, Colombia and South Korea. Arkansas ranks 19th among states in corn production.
The average volume of corn exports from the U.S. for 2015-2017 is 52.9 million metric
tons or 14 percent of domestic production. A 25 percent tariff would mean a 14 percent
decline in value and a 44 percent loss in exports.

Sorghum

The U.S. is the major exporter of sorghum with most of the shipments sold to China.
The average volume of U.S. sorghum exports for the 2015-17 period is 7.12 million
metric tons or 58 percent of domestic production. Among U.S. states, Arkansas ranked
ninth in value of sorghum production in 2016 at $17 million. Using a similar model
as for soybeans and corn, U.S. sorghum prices would decline by 18 percent, while volume
of exports would fall 12 percent.

Methodology

The soybean, corn and sorghum analysis aggregates all importers and all other exporters
into a rest-of-world, or ROW, region and assumes a uniform tariff on all U.S. exports.
A net trade, partial equilibrium model with the U.S. as the net exporter and the ROW
as the net importer solves for a new equilibrium price and U.S. export level relative
to the averages of the 2015 to 2017 marketing years. The rice analysis is more detailed,
based on detailed global models maintained by the Division of Agriculture. It allows
for differential trade responses depending on likely and unlikely U.S. rice export
flows that would face a tariff backlash from countries who export steel to the U.S.
state impact estimates use the IMPLAN model, but these estimates are approximate since
the input-output relationships for grains and oilseeds are not highly disaggregated.

For more information about agricultural economics, visit www.uaex.edu.

About the Division of Agriculture

The University of Arkansas System Division of Agriculture’s mission is to strengthen
agriculture, communities, and families by connecting trusted research to the adoption
of best practices. Through the Agricultural Experiment Station and the Cooperative
Extension Service, the Division of Agriculture conducts research and extension work
within the nation’s historic land grant education system.

The Division of Agriculture is one of 20 entities within the University of Arkansas
System. It has offices in all 75 counties in Arkansas and faculty on five system campuses.

The University of Arkansas System Division of Agriculture offers all its Extension
and Research programs and services without regard to race, color, sex, gender identity,
sexual orientation, national origin, religion, age, disability, marital or veteran
status, genetic information, or any other legally protected status, and is an Affirmative
Action/Equal Opportunity Employer.